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VerticalNet: B2B First Mover

First mover has been the Holy Grail of Internet investing. How about the first mover in business-to-business? I would say VerticalNet (VERT) would fit the description. The company went public in the days when only a handful of people even heard the acronym B2B.

However, when it arrived on the scene, I thought the structure was unworkable. While B2C (business-to-consumer) sites can scale horizontally (as Amazon.com has done by leveraging its base into online drugstores, CDs, greeting cards and so on), I thought this would not make sense with B2B. After all, what synergies are there between chemicals and steel and life sciences and so on? Well, so far VerticalNet has skillfully built a B2B powerhouse that spans over 50 industries.

In its early stages, VerticalNet was a content play, relying primarily on advertising revenues. But the company has been shifting towards transactional revenues. For example, the company recently announced the VerticalNet E-Commerce Center. This platform gives B2B sellers all the necessary tools, such as catalogs, career centers and transaction engines (including auctions).

Actually, by focusing on content and building a user base, the company will likely have better success with its transactional model. In fact, many companies see VerticalNet as a very effective way to realize the many benefits of B2B -- quickly. Evidence of this was from an IBM deal. In the agreement, VerticalNet will promote IBM products on the vertical communities, whereas IBM will promote e-commerce communities on VerticalNet (IBM has agreed to purchase 375 storefronts in the next 12 months).

VerticalNet has been growing its revenues nicely. In the latest quarter, revenues were $5.18 million, a 477 percent increase from the same quarter a year ago and $3.55 million from the second quarter of 1999. As for traffic, this grew from 4.25 million in the second quarter to 6.03 million. International visitors accounted for 40 percent of the traffic.

The company has developed many of the vertical communities internally. But there have also been smart acquisitions. There was the purchase of LabX, which specializes in the life sciences industry; CertiSource, a reseller of certification and training materials; and Isadra, an e-commerce provider. Then there was the purchase of the NECX Exchange, which is the leading B2B marketplace for the electronics industry.

VerticalNet recently had another round of financing, raising $141.9 million. The money will help the company further expand its already burgeoning B2B presence. What's more, companies will seek out the services of VerticalNet to get to market quickly in the fast-growing B2B space. While the stock has had a healthy rise, there is likely to be more success -- as the company benefits from the tidal forces of B2B.